Frankfurt stung by Philippine politics over PIATCO

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Fraport (Frankfurt Airport Services Worldwide) has posted a 5% drop in pre-tax profits for 2001 mainly due to writedowns on loans to the PIATCO terminal 3 project at Manila International airport. Group sales rose 2.9% to Eur1.58bn ($1.37bn). The company said it had taken a Eur59.8m ($52.0m) writedown on loans granted to the construction of the Manila terminal. T3, due to open at the end of this year, will become Manila's main international terminal and will create a four-storey shopping mall with food courts and a conference centre with a 13m passenger target.

Fraport said the financial provisions were necessary after duty-free sales forecasts and traffic numbers for Manila T3 were revised downward.

By the end of 2001 Fraport had invested Eur234.7m ($204.1m) in the Manila project and had provided guarantees for loans worth Eur142.9m ($124.3m). Meanwhile passenger numbers at Frankfurt airport for the year had dropped by just 1.6% to about 48.6m, despite the crisis in global travel. Fraport said in a statement, "The air transport industry was considerable marked by the effects of the September 11 events. But the double-figure monthly rates of decline have shrunk thanks to a noticeable increase in travel demand."

"The commitment to construct the [Manila] terminal is currently Fraport's largest and most important activity outside Frankfurt. Construction progress is on schedule."

In a recent interview, Fraport ceo Wilhelm Bender said the Manila contract would be eyed by the international financial community as a litmus test of the new Philippines government's approach to foreign investment. Fraport is seeking ways to limit the damage arising from its involvement in PIATCO, conceived as an ambitious project, which the current government has refused to recognise.

But Fraport's major problem arises from its partner in the project. The management contract for the new terminal was awarded to the Cheng family, which set up PIATCO (Philippines International Air Terminals Co) to manage the concession, and fierce rivals with other local bidders. Fraport acquired a 30% stake in PIATCO and a 40% share in PTI, the company that will manage the terminal and control the duty-free concession.

The original contract was awarded to PIATCO by the Philippine government under the former president, Joseph Estrada. And two years later Fraport sealed its involvement in the project in an agreement signed in July 1999. President Estrada has since been ousted, and the government of president Gloria Macapagal Arroyo has questioned elements of Fraport's agreement. But in a court case this week terminal 3 project director Antonio Gana and other airport executives were cleared of any wrongdoing over the contract.